WITNESS

Putting Gaza back to work

Perhaps the Prime Minister had been told that when he emerged from lunch in the Palestine Hotel on the seafront at Gaza, he would be serenaded by a bagpipe band. To the delegation accompanying him, it came as something of a surprise. After a pleasant lunch with Yasser Arafat and a group of Palestinian businessmen we were ill-prepared for a guard of honour.

But then the Gaza strip is a surprising place. My left-hand lunch companion was educated in East Berlin, under a GDR/PLO exchange programme. He is now disbursing venture capital to small businesses under a US aid programme. On my right was a builders' merchant, supplying steel rods to a Northern Ireland company rebuilding the Gaza hospital. Opposite, the chairman of the Gaza Chamber of Commerce talked of his expanding membership. All three were resolutely optimistic about the prospects for a lasting peace.

That optimism is hard to share. The obstacles in the way of economic regeneration in Gaza are immense. A year ago more than 100,000 Palestinian workers were employed in Israel. Since the border closures fewer than 20,000 are given permits to make the daily trip. The result is a massive reduction in earnings which has a significant impact on the local economy. The population of the strip is a little less than a million, so 80,000 fewer wage earners is a calamitous blow.

Exports from Gaza are also heavily constrained by external security problems. Fruit and cut flowers - the two largest export commodities - are highly vulnerable: short border delays can render them worthless. Palestinian growers have, as a result, not been able to take up their full EU quota of strawberry exports. And the problem of the refugee camps, breeding grounds for Islamic fundamentalism, remains intractable.

Yet there is a strong sense of momentum in Jerusalem, and in Gaza. Israelis and Palestinians seem to share a vision of the type of economy which can be created in the Occupied Territories, based on establishing new industrial areas, on our enterprise zone model, within the Territories. If the new Palestinian homeland is to survive, it needs its own economic base. Reliance on Israel for work is not a sensible long-term option.

Such a development may be possible. The impressive Palestinian Minister of Development, Mabil Sha'at, persuasively argues that a well-educated labour force, prepared to work at 20 per cent of Israeli wages yet close to Israel's export outlets, could be a powerful attraction to foreign investors, especially in agri-business.

But first there must be huge infrastructural investment. There is no Palestinian-controlled port or airport, no railway and few roads. Israelis control all exit points.

Britain's support should be focused in that area. The business group accompanying the Prime Minister was rich in experience in water supplies (Thames), port development (P&O) and construction (Mott McDonald, Laings). With aid agency support, and political risk insurance, those companies can make a big contribution. That would allow others, such as Marks & Spencer, to contemplate joint ventures with an export focus.

At the moment the Palestine National Administration, with its new flag, new broadcasting corporation, new police force equipped with Land-Rovers and Moto Guzzi superbikes and bagpipe band, gives off a faintly Ruritanian air. There is little formal administration. Tax-collecting has almost stopped and teachers remain unpaid. The pot-holed, barrier-strewn roads and refugee camps are vivid reminders of the past.

But there is a new, rough, state slouching, if not towards Bethlehem, towards East Jerusalem, to be born. The Prime Minister's visit gave us a glimpse of what needs to be done to help it. It was worth suffering the bagpipes.

The writer is director-general of the Confederation of British Industry.